The Earnings Cap was introduced to set a ceiling on the amount of benefits that could have been paid by defined benefit occupational pension schemes (so this includes company pension schemes and public sector pension schemes). The same limit applied to all personal pension schemes for the tax years from 1989/1990 onwards and was referred to as 'net relevant earnings'.

It applies to people who joined an occupational pension scheme set up since 14th March 1989, or who joined an occupational pension scheme from 1st June 1989 (which was set up before 14th March 1989).

With effect from 6th April 2006, the limit set by the Earnings Cap has been replaced. For the tax year 2006-2007 and all subsequent years, the Earnings Cap is replaced by the lifetime allowance and the annual allowance limits.

However, it is important to understand that many company and public sector defined benefit pension schemes will continue to use the ‘Notional’ Earnings Cap in order to restrict benefits payable. Other employers and pension schemes may choose to set their own Earnings Cap instead.